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United Fire & Casualty Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 9, 2012 07:14AM
United Fire & Casualty Company (UFCS) filed Quarterly Report for the period ended 2012-06-30.
Highlight of Business Operations:Our investment portfolio includes trading securities with embedded derivatives. These securities, which are primarily convertible redeemable preferred debt securities, are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains and losses. Our portfolio of trading securities had a fair value of $14.2 million and $13.5 million at June 30, 2012 and December 31, 2011, respectively.
At June 30, 2012, we classified $2,800.6 million, or 99.4 percent, of our fixed maturities portfolio as available-for-sale, compared to $2,697.2 million, or 99.4 percent, at December 31, 2011. We classify our remaining fixed maturities as held-to-maturity or trading. We record held-to-maturity securities at amortized cost. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.
We invest the premiums received from our policyholders and annuitants in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are: volatility in the financial markets, economic growth, inflation, changes in interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. In our life insurance segment, net investment income decreased 6.9 percent and 2.9 percent in the three- and six-month periods ended June 30, 2012, compared with the same periods of 2011, due to historically low yields that reduce both our investment income and margin on earnings. We are maintaining our investment philosophy of purchasing quality investments rated investment grade or better, and we are more closely matching the duration of our investment portfolio to our liabilities.
Net cash flows used in investing activities totaled $101.4 million and $123.8 million for the six-month periods ended June 30, 2012 and 2011, respectively. In the six-month period ended June 30, 2012, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments that totaled $318.9 million compared to $339.9 million for the same period in 2011.
Our cash outflows for investment purchases totaled $419.5 million for the six-month period ended June 30, 2012, compared to $294.5 million for the same period in 2011. In 2012, we purchased a higher level of fixed maturity securities than we have historically purchased. Such securities are more profitable than other investment vehicles when market interest rates are low.
Stocks Discussed: UFCS,